1.4 Making the Business Effective (Edexcel GCSE Business): Flashcards
Exam code: 1BS0
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Define unlimited liability.
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Define unlimited liability.
Unlimited liability means owners are fully responsible for all business debts, with no legal distinction between the owner and the business.
Define limited liability.
Limited liability means owners (shareholders) can only lose the amount they invested if the business fails; personal assets are protected.
Which two business types have unlimited liability?
Sole traders and partnerships have unlimited liability.
True or False?
A shareholder in a limited company could lose their personal home if the company fails.
False.
With limited liability a shareholder can only lose the amount invested; personal assets are protected.
With unlimited liability there is no legal distinction between the owner and the .
With unlimited liability there is no legal distinction between the owner and the business.
Define sole trader.
A sole trader is a business that has a single owner, although they may still hire employees.
What is the main advantage of being a sole trader?
The owner has complete control over the business and keeps all the profits.
Define partnership.
A partnership is a business where two or more people join together as owners.
Give one advantage of a partnership over a sole trader.
A partnership brings more skills and knowledge and greater access to finance.
Give one advantage of a private limited company (Ltd).
It has limited liability and easier access to greater finance.
True or False?
Setting up a private limited company is cheaper and simpler than becoming a sole trader.
False.
An Ltd is more expensive and time-consuming to set up, with more complex legal requirements than a sole trader.
Define franchising.
Franchising is where a franchisee buys the rights to run an established business model and use its branding, paying the franchisor a lump sum plus ongoing royalties.
A franchisee pays the franchisor ongoing fees called , often 5–10% of sales.
A franchisee pays the franchisor ongoing fees called royalties, often 5–10% of sales.
Give one advantage of buying a franchise.
The franchisee gets a recognised brand, with training and supplies provided by the franchisor.
Give one disadvantage of buying a franchise.
There are high start-up and royalty costs, and the franchisor controls quality (and can remove the franchise rights).
Define proximity (in business location).
Proximity refers to how close a business is located to its market, labour, materials or competitors.
Name the four types of proximity that influence business location.
Proximity to the market, labour, materials and competitors.
Why might a business locate close to its market?
It reduces transport costs and increases accessibility to customers.
What does 'proximity to labour' mean?
Locating near an area with a high concentration of qualified and skilled workers.
Why might a business locate near its raw materials?
To ensure supply and minimise transport costs.
Locating near can give a shared customer base or help a business stand out.
Locating near competitors can give a shared customer base or help a business stand out.
How does the nature of a business affect its location needs?
A manufacturer needs a large space and loading dock, whereas a law firm needs an accessible office.
True or False?
The ideal location is the same for every type of business.
False.
Different businesses have different needs for space, infrastructure and accessibility.
How has the internet reduced the importance of location for some businesses?
E-commerce businesses can reach customers anywhere, so they can use cheaper premises in less prominent areas.
Businesses that rely on traffic still need a good physical location.
Businesses that rely on foot traffic still need a good physical location.
True or False?
For an e-commerce business, physical location is usually less critical than for a shop relying on passing trade.
True.
E-commerce businesses can trade from anywhere, so location matters less than for a shop relying on foot traffic.
Give two benefits of choosing a good business location.
A good location can attract customers, reduce costs, provide access to skilled labour and enhance reputation.
Define the marketing mix.
The marketing mix (the 4Ps) is the combination of elements a business uses to market a product and satisfy its target market.
What are the 4Ps of the marketing mix?
Product, price, place and promotion.
In the marketing mix, 'place' refers to the business location and the through which a product reaches the customer.
In the marketing mix, 'place' refers to the business location and the distribution through which a product reaches the customer.
What does 'promotion' do in the marketing mix?
Promotion generates customer awareness, interest and desire, and builds brand awareness and loyalty.
What three elements make up the product design mix?
Function, aesthetics and cost.
True or False?
The four elements of the marketing mix work independently of each other.
False.
The 4Ps work together to satisfy the target market and achieve the business's objectives.
In a competitive market with many substitutes, how might a business change its price?
It may lower prices or offer temporary discounts and promotions to stay competitive.
How can 'place' give a business a competitive advantage?
By locating in areas of high foot traffic or using innovative online channels to reach customers.
The rise of convenience stores like Tesco Express shows that can be the main part of the marketing mix that attracts customers.
The rise of convenience stores like Tesco Express shows that location can be the main part of the marketing mix that attracts customers.
How might a business change its product in response to changing consumer needs?
It adapts its products — e.g. launching plant-based foods as demand for vegan and vegetarian options grows.
True or False?
During a recession, businesses may lower prices or offer discounts to keep price-sensitive customers.
True.
In a recession consumers become more price-sensitive, so businesses may reduce prices or offer discounts.
How has the shift to digital changed how businesses promote products?
Businesses invest more in digital marketing channels, such as social media and influencer marketing.
How can new technology help a business set its prices?
Using data analytics to track competitors' prices, and dynamic pricing that adjusts prices in real time based on supply and demand.
New technology such as lets businesses reach customers in any location, at any time.
New technology such as e-commerce lets businesses reach customers in any location, at any time.
Define business plan.
A business plan is a document produced by the owner at start-up that sets out forecasts for the business idea, market, finances and marketing.
What are the two main aims of writing a business plan?
To reduce the risk of starting a new business and to help the owner raise finance.
Give three things a business plan usually contains.
The business idea, aims and objectives, target market, financial forecasts, sources of finance, location and the marketing mix.
Writing a business plan forces the owner to think about the business before they start, reducing the risk of .
Writing a business plan forces the owner to think about the business before they start, reducing the risk of failure.
How does a business plan help a business obtain finance?
Lenders and investors can explore the plan and make an informed decision about whether the business is credible and worth the financial risk.
True or False?
A business plan is typically produced by the owner when starting up the business.
True.
A business plan is a document produced by the owner at start-up to forecast and plan the business.
Why do investors such as venture capitalists look at a business plan?
To see whether there is a chance to increase the value of their investment and make a worthwhile profit.
A clear action plan provides for the business and gives lenders confidence.
A clear action plan provides direction for the business and gives lenders confidence.
Where can an owner get a template to help write a business plan?
Most high street banks provide a detailed template to complete when applying for finance.
Why does producing a business plan reduce the risk of failure?
It forces the owner to think about every aspect of the business beforehand and be well-informed about potential problems.
True or False?
A business plan is only useful for raising finance, not for running the business.
False.
It also provides direction and makes the owner plan every aspect of the business, reducing the risk of failure.
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